Kansas retailers will get a reprieve from the provisions of a new sales tax law as a result of a “grace period” issued by Kansas Governor Kathleen Sebelius.

Sebelius announced the six-month reprieve in July and restated it in September, responding to concerns raised by the Kansas Chamber of Commerce and echoed by Senate President Dave Kerr and Speaker of the House Doug Mays.

In July, Sebelius announced the Department of Revenue would take a “relaxed” approach toward enforcing the terms of the Streamlined Sales and Use Tax Agreement Conformity Act, passed by the Kansas legislature before the close of its 2003 session. Sebelius promised the state “would hold retailers harmless for any sanctions until at least the end of 2003.”

Multi-State Agreement

More than 7,000 units of government, including all but five states, levy sales and use taxes. The patchwork of state and local sales and use taxes is complex, and a business that sells in more than one jurisdiction must keep track of the tax laws in each jurisdiction.

In an effort to respond to that complexity, representatives of 33 states and the District of Columbia voted in November 2002 to approve a multi-state agreement to establish a single, uniform system for administering and collecting sales taxes on nearly $3.5 trillion in retail transactions annually.

The Streamlined Sales and Use Tax Agreement (SSUTA) will go into effect once 10 state legislatures have modified their state sales tax laws to comply, provided 20 percent of people who pay sales taxes live in those 10 states. Additional states can join the agreement at any time with the approval of those that have already signed on. The Kansas legislature’s approval of the Streamlined Sales and Use Tax Agreement Conformity Act communicated its intent to participate in the compact.

The SSUTA promises businesses new tools, such as approved software, to help them collect the taxes. Under the agreement, businesses would deal with a single state entity, which would distribute the share of taxes due to counties, cities, and local taxing jurisdictions.

The SSUTA also includes a provision opponents say will create new, onerous record-keeping and collection burdens: The agreement applies not only to Main Street retailers, but to Internet sellers as well.

Mixed Response

Businesses in Kansas were the first to complain to state elected officials and get relief in the form of delayed implementation of the new rules.

Kansas Chamber President and CEO Lew Ebert said, “This was a classic case of businesses being burdened by new state regulations, our members telling us about the problem, and the Chamber taking the problem to the state bureaucracy and getting something done about it.”

Ebert added, “State government regulators are in their offices everyday, making decisions that impact how business is done in this state. When those Department of Revenue bulletins started arriving at retailers, our members literally lit up our lines of communications.”

“Thirty-three states and the District of Columbia have decided it’s time to come up with a uniform system to simplify collecting the taxes. That could create opportunities as well as challenges for farmers and ranchers,” said Pat Wolff, senior lobbyist for the American Farm Bureau Federation.

“When a cantaloupe is cut in half, put on a plate and sold with a fork and napkin, it is not food. Instead, it’s ‘prepared food’ in certain states where that definition makes it subject to sales taxes. In other states, the cantaloupe may be taxed regardless of whether it’s ‘prepared.’

“The pennies’ difference may not be a big deal to consumers,” continued Wolff. “But if you’re in the business of selling cantaloupe, you need to know whether, and how much, it’s taxed in your state and perhaps others.”

Even if approved by the requisite states, the SSUTA faces legal obstacles, particularly because of the Internet sales tax provision. The U.S. Supreme Court ruled in the Quill decision in 1992 states may not require out-of-state retailers to collect and remit sales taxes if the retailer does not have a substantial physical presence in the state. The SSUTA ignores that “nexus” requirement, and thus would require congressional approval before states could implement the online sales tax regime.

The full text of the 70-page Streamlined Sales and Use Tax Agreement, adopted November 12, 2002, is available through PolicyBot. Point your Web browser to http://www.heartland.org, click on the PolicyBot button, and search for document #13336.